Cameron Cowan | Knowledge Steward
All investments have some risk and in rental property, you're offering housing as a service and that means that there are some unique risks to this business. There are also legal liabilities and the regular possibilities of lawsuits. So how do you protect yourself and all our sources of income from the liabilities that come with this industry? There are 7 ways you can protect yourself and reduce your liability in your income property business.
When you have repairs and other work done on your rental property, make sure to have things done by the professionals unless you can competently do it yourself. Shoddy work and sub-standard fixes (unless they are very temporary) open you to unnecessary liability. If you aren't sure about a repair or a fix, call a professional from the RHAWA vendor directory or seek out online resources to decide if you are still confident enough to complete the repair in a satisfactory way.
Regular inspections is something that everyone who owns rental property should do. Visiting your rental property and making sure that Smoke and CO 2 detectors have fresh batteries, furnace filters have been changed, and that all interior and exterior walls, windows and systems are still in good repair is essential to a profitable property. If you can identify problems before they cost hundreds or thousands to fix, it can help the bottom line of your business and keep your tenants happy as well.
Keep a Tenant Ledger and File
Besides inspections, this is one of the most important things you can do for your business. Keeping good files on maintenance requests, receipts for repairs, receipts for rent, leases, lease addenda, extensions, and all paperwork related to your business is vital. When you are organized, performing an eviction or successfully defending a deposit refund statement is much easier. It is also helpful during tax time so that you can successfully expense certain things or keep good depreciation schedules. The best thing to do is to keep a tenant ledger for every rental unit that you have in your portfolio and then have a file for every tenant and every unit. Even if you have just one house, this kind of easy to track organize is vital for a profitable business.
Keep Your Lawyer Handy
We hope that you never need a lawyer, but the reality is that in property management, legal situations can come up. This means that having an established relationship with a lawyer is simply good business. When you need legal advice on how to proceed, you can always start with your resources here at RHAWA, but when you need that extra legal advice that only a lawyer can give, there's no need to scramble looking for a number or a recommendation. A lawyer is as essential to your team as a good plumber.
Have Good Insurance
If you haven't taken time to review your landlord insurance policy (or worse yet don't have one) now is the time to get out your policy and make sure that you are protected to a way that makes you comfortable with your liabilities and risk.
Form an LLC
Another way you can reduce liability and protect all your assets is by forming an LLC and separating your business assets from your personal assets. This can make you a less attractive target, give you greater privacy, and limit your personal liability. If you want to learn more about forming a corporation for your real estate investment business, take our class, Protecting Your Assets. To see when it's available next head over to the RHAWA calendar.
Be a member of RHAWA
If you're already a member, you've made a great decision! If you aren't a member, now is the time to join. RHAWA has a variety of resources including attorney-reviewed forms, vendor directory, resource desk, CONNECT member forum, events, and our Current newspaper to help you effectively manage your business. Self-management of your property investment business is possible and RHAWA is here to help you make it possible.